$36.6 Million 4th-period Net At Continental

January 22, 1985|By William Gruber.

CONTINENTAL ILLINOIS Corp., parent of Continental Illinois National Bank and Trust Co. of Chicago, wound up a nightmare year of huge loan losses, management upheavals and a failure-averting federal rescue by posting a profit of $36.6 million in the final three months of 1984.

That still left it with a loss of $1.1 billion for the year, the bank holding company said Monday--the biggest yearly deficit ever recorded by a U.S. banking concern.

The final-quarter profit, which was equal to 12 cents a share on a fully diluted basis, was up from a net income of $25.4 million, or 57 cents a share, for the year-earlier period. The full-year loss, equivalent to $26.99 a share, compared with a 1983 profit of $108.3 million, or $2.63 a share.

DURING THE YEAR, Continental reported a net income of $29.4 million in the first quarter but a record-shattering $1.19 billion loss for the second three months, when the bank was hit by a massive run on deposits and a liquidity crisis. Continental showed a $4.3 million profit in the third quarter after federal regulatory agencies came to its rescue in September with a $3.5 billion financial package.

Under the reorganization plan, the Federal Deposit Insurance Corp. agreed to assume $2 billion in poor loans and immediately inject $1.5 billion of capital into the beleaguered bank, which had undergone a severe liquidity crisis caused by an outflow of deposits since May.

``That`s all old news,`` said William Weiant, banking industry analyst at First Boston Corp. ``That`s behind it. The bank is now in the workout stage.``

Another analyst, who declined to be identified, predicted ``it will take quite a while`` before the bank returns to a normal financial condition. ``I won`t predict when that will be,`` he said.

THE HOLDING company`s year-end statement showed how much Continental, Chicago`s largest bank at the end of 1983, had been hurt during the ensuing year. Its total assets by the end of 1984 plunged to $30.4 billion from $42 billion, dropping it behind archrival First Chicago Corp.

Total deposits shrank to $15 billion from $29.4 billion a year earlier. Most of that drop was in foreign deposits, which fell to $7.1 billion from $18 billion. Net loans and lease arrangements dropped to $24 billion from $30.8 billion.

The banking firm also said its full-time employment was cut to 9,618 by the end of 1984 from 12,189 a year earlier. About 900 of the cuts came through the sale of banking operations and holding-company subsidiaries, such as the credit-card operation and the leasing subsidiary.

JOHN E. Swearingen, who became chairman and chief executive officer of the holding company in August, said the fourth quarter was the first full quarter in which the restructuring plan was reflected in operating results.

``Relieved of a substantial burden of low-yielding, nonperforming loans, the corporation increased net interest income by more than 40 percent over the previous quarter,`` said Swearingen, who had retired as chairman of Standard Oil Co. (Indiana) before joining Continental.

He said the banking firm`s earnings were also helped by declining interest rates late in the year and by an improvement in the bank`s funding picture.

Continental transferred another $53 million of loans to the FDIC in the fourth quarter and has the option of transferring an additional $1.4 billion of problem loans to the agency by Sept. 26, 1987.

THE BANK`S financial ratios, which became some of the strongest among large U.S. banks as a result of the September loan restructuring, were bolstered further in the fourth quarter, added William S. Ogden, the former Chase Manhattan Bank executive who became chairman and chief executive officer of Continental Bank in August.

Total stockholder equity rose to 5.7 percent of assets at the end of 1984 from 4.3 percent a year earlier, while the bank`s primary capital ratio increased to 6.9 percent from 5.2 percent.

Despite the transfer of loans to the FDIC, however, the bank said its total nonperforming loans increased in the last three months of 1984 to more than $1 billion, equal to 4.1 percent of loans still on its books, from $949 million at the end of September. However, the total was down from $1.96 billion at the end of 1983, or 6.2 percent of its portfolio.

A spokesman said the increase in nonperforming loans was not concentrated in any sector of lending. He said the bank is managing carefully its ``put option`` to tranfer bad loans to the FDIC. One analyst noted that many banks took a ``hard line`` toward foreign loans in the fourth quarter, and that Continental probably followed that pattern.

THE BANK HAD net loan chargeoffs of $48 million in the fourth quarter, including $23 million of sovereign-risk foreign loans. That was less than half the net chargeoffs of $103 million in the last quarter of 1983. In all, the bank had losses of $796 million from net chargeoffs last year, more than double the $387 million of a year earlier.

It made a provision of $66 million in the final quarter for possible future loan losses, down from $110 million a year earlier.

Borrowings from the Federal Reserve Bank of Chicago fell to an average of $3.8 billion in the fourth quarter from $6.1 billion in the previous three months. At year`s end, borrowings from the Fed totaled $2.9 billion. But Continental continued to borrow an average of $4.1 billion daily from a private financing group set up by 28 banks last summer, unchanged from the third quarter.